Steinway agrees to Paulson buyout, market expects rival bid

By Maria Ajit Thomas and Greg Roumeliotis

Published August 14, 2013

Reuters

Steinway Musical Instruments Inc , best known for its grand pianos, agreed on Wednesday to be taken private by Paulson & Co after the hedge fund firm raised its offer to $40 per share, valuing the 160-year old company at about $512 million.

Steinway shares rose above the Paulson bid, touching a high of $41.60, suggesting some investors expect a higher offer.

The piano maker caters to the tastes of the rich and famous, a market known to be more resilient to economic shifts, said CJS Securities Inc analyst Arnold Ursaner.

"When you are dealing with any global luxury brand, the value is in the eye of the beholder. To me it's no different than a work of art, it's what someone is willing to pay for that unique asset. The piano business of Steinway has a great pedigree and is not easy to come by," Ursaner said.

A leveraged buyout of Steinway represents an unusual private equity-style deal for hedge fund mogul John Paulson, who shot to fame in 2007 with a prescient bet against subprime mortgages and repeated his success in 2009 with a bet on gold.

"We will proudly support the company's legacy as the premier global piano manufacturer, a reputation earned with an uncompromising commitment to quality appreciated by almost all of the world's most demanding pianists," Paulson said in a statement.

He added he does not plan to close, relocate or change any of the company's manufacturing operations.

Steinway said Paulson & Co raised its offer to $40 a share from $38 following a $39 bid by South Korea's Samick Musical Instruments Co Ltd <002450.KS>.

Steinway said on Tuesday that private equity firm Kohlberg & Co, which agreed to a deal with Steinway in July for $35 per share, had waived its right to match or beat Paulson's offer, which represents a premium of 31.4 percent to Steinway's share price prior to the Kohlberg offer.

Steinway said the deal with Paulson did not provide for a "go-shop" period during which the company could actively seek out competing bids. But Steinway is allowed to accept a superior offer until the closing of Paulson's tender offer, within 25 days.

Steinway would have to pay a termination fee of about $13.4 million to Paulson if it accepted another offer. It will pay Kohlberg $6.7 million to terminate their agreement.

PORTER AND RACHMANINOFF

Steinway, whose pianos have been used by legendary artists such as Cole Porter and Sergei Rachmaninoff and by contemporary ones like Chinese concert pianist Lang Lang, is nearly one-third owned by Samick, according to Thomson Reuters data.

Founded in 1958, Samick already manufactures pianos in the United States and has a production capacity of more than a half million guitars per year through factories in South Korea, Indonesia, China and the United States, according to its website.